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Here’s the program.
Andrew Warner: Hi, everyone. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart, and a place where I interview entrepreneurs about how they built their business.
The big question for today is how do you take an idea and turn it into a billion-dollar business? Joining me is Sean Glass, who had an idea for letting college students use their college IDs for purchases anywhere, and not just on campus. That idea became HigherOne, a company that did an IPO earlier this year and today is worth nearly a billion dollars. I invited Sean to talk about how he and his co-founders did it, and to talk about his new company, EmployInsight. Welcome Sean.
Sean Glass: Thanks for having me.
Andrew: As I was researching you I noticed at one place you called yourself an expert in the field of Positive Psychology. What is Positive Psychology?
Sean: That’s a great question Andrew. Positive Psychology is a subfield within psychology that focuses on non-disease psychology. Actually, I joke with Marty Selegman, who is the founder. He was the head of the American Psychological Association. When he was President he said, “It’s my initiative to encourage research into not just disease, anxiety and depression, but also what’s right with people.” As an entrepreneur that resonates because you try to build a team from its strengths and you’re focused on success and building something from nothing, not fixing what’s wrong. That’s really what causes psychology is as a field, it’s focused on [inaudible].
One area that’s got a lot of press on the financial side is the field called “Behavioral Economics.” That’s all by Daniel Kahneman. Daniel Kahneman is the first psychologist to win the Nobel Prize in economics. That falls broadly under Positive Psychology, so does the study of Wellbeing, or Happiness. I worked with a member of Parliament in England, a guy named Richard Laird on some ideas there, and broadly even for in an entrepreneurial organization setting goals, building teams, helping people so that their work contributes to their life. I think most entrepreneurs would agree there’s no such thing as a work/life balance. It started out your work is part of your life, so how do you get the most out of that? That’s why I think Positive Psychology is a very interesting field and also pretty applicable when you’re starting a business.
Andrew: When you were building up HigherOne those eight years you were there, did you have a work/life balance?
Sean: That’s funny that you ask that. I’ve got a 10-day old child and I met my wife while I was working at HigherOne. She was working at one of the school that we had as clients. We met at a trade show. I think when you’re doing something you’re passionate about, that you’re enjoying and building from scratch, you’re having a lot of fun. The fact that you’ve put in 16 hours that wouldn’t feel like it because you’re not working for the man, you’re working to build something that has value for customers and that you’re enjoying seeing it go from nothing to something that’s providing employment and value to the world.
Andrew: I said my plan for this interview is to talk about HigherOne, and how you launched and built it, but I’ve got to stick with this Positive Psychology idea for a little bit. How does it apply day-to-day? How do you use Positive Psychology?
Sean: One of the things that I personally do, I mean there’s a concept of strength, so some of the research in Positive Psychology is on an area that we call “Team Character Strengths.” If you are interested, there’s a pre-character strength survey that’s been developed. You could take that and it will kind of tell you out of 24 character strengths, a ranking for you from 1 to 24. It doesn’t mean your 24th is a weakness, it just means it’s a lesser strength.
What I have tried to do and what I’m trying with the team with my new startup, is each one of us knows our strengths and we try to use those to forward the business. I know for myself that curiosity, love of learning and creativity are strengths, as is zest, energy and enthusiasm. I try to look how I can use that within the business, within the context of what I’m trying to build. Than, I also know that I want to add someone to the team who’s diligent, who’s got foresight and someone who’s actually prudent as well. My CTO in my new startup, one of his strengths is prudence. Mark builds things. He’s incredible, but he’s also very careful and makes sure there are no security holes. I want to take four steps forward and he just makes sure that we aren’t taking them off the cliff.
Andrew: I can see how that helps. I can see how it applies. I can actually see how I could spend a whole hour just asking you questions about this. But I’ll go back to my main mission here.
Sean: One other thing that might be useful. There are some basic ideas from psychology in product design. One idea that people may find interesting is that endings matter. The way we remember things is a combination of the peak experience and the ending of an experience. We tend to design products with the beginning and the average experience in mind. Especially with webpage products, a lot of companies could benefit by focusing on “How do you leave your customer?” not just, “How do you greet them?” That’s another thing out of Positive Psychology that’s called “Peak-End Effect.” It’s very applicable to product design.
Andrew: I could actually even see that here in my interviews. I always start out my interviews very well. I write out my notes and I know exactly how we’re going to get going and I even know my first question, but I don’t know we end things. I just kind of end it with good-bye, and why don’t you tell me how people can connect with you. You’re right. I don’t put enough thought into the end.
Let’s go back to the start of your company. I read in the “New York Times” that you and your two co-founders Miles and Mark were driving to an event for aspiring entrepreneurs, and that’s where you shared the idea that you had for this business with them. What was this event, and were you going to lots of event for aspiring entrepreneurs at the time?
Sean: Miles and I were actually on our way. I remember because it was either my birthday or the day before my birthday and we were going up to Guy Kawasaki’s Garage .com Bootcamp for Entrepreneurs. It was a [inaudible] college. At the time we had founded the [inaudible] entrepreneurial at [inaudible]. We were very much about [inaudible]. A lot what we were doing was evangelizing entrepreneurship with Dale. People that were meeting there knew that that’s a subject close to my heart. I’m still doing that 10 years later.
We were kind of going to Boston to tell everyone at Boston and Harvard that, “Hey, Yale does entrepreneurship too.” I had this idea the night before. We were looking. The idea was kind of around. College campuses would allow students to make purchases using their ID cards and we’d been looking at the time, and that sounds like a long time ago. It’s the rise and fall of wingspan banks from kind of ’97, ’98, and ’99. We basically looked at it and said, “Online banking hasn’t failed essentially.” Wingspan bank is a poor experiment. Really, if you were to think of online banking as a product, who would use it? You would want to have it be college students because that way they would never need a branch. They would just get trained into using online banking. We didn’t understand why you needed a branch.
We took that and kind of wrote out a little summary and gave it to Miles before we sat down. We ended up spending the whole time talking about it. By the time we got back to New Haven later that night, we said, “Hey, there’s something to this, we should explore it a little bit further.”
Andrew: I see. The idea was, “How do we get into banking?” You took into account your own personal experiences.
Sean: Essentially we were saying that colleges and universities seemed to want to provide banking and payment services to their students, but they’re not well equipped to do that, so could we build a service that would enable schools to do that easily and would provide a great experience for students and would that then enable us to build retail banking with a proven business model. We’re not only going to have to figure out the business model on that side, but we had to figure out what the value was to the school as well as to the students.
Andrew: Banking seems like a big undertaking, especially for two guys who are in college. I’m sorry I thought Mark was with you at the time, when we discussed it.
Sean: Mark was with us, just not as a [inaudible] at that time.
Andrew: Even for three college students to even consider taking on banking feels big. Why not start smaller than a business that requires government regulation, consent from bureaucracies, and a large amount of funding? Why start there?
Sean: I think we just saw an opportunity. I think part of it was when we got started how much regulatory oversight there was going to be and how much we would have to do in that area. I talked to a number of entrepreneurs starting payment startups and they kind of had the same bright-eyes innocence that we did, which is you don’t know that there are 10 walls in front of you that you’re going to have to break through. But you’re excited about the idea and you’re getting positive customer feedback and so you’re going to keep pushing. As you build the product, you’re discovering, “Oh, we need to build customer identification processes. We’ve got to have some sort of banking license in this mix, how are we going to accomplish that?” In each step we just kept solving those problems, and it worked out pretty well.
Andrew: What’s the first thing that you do after you have this idea?
Sean: We realized that our customers were colleges and universities, so the first thing we had to do was go talk to customers. I’ve become a huge fan of Steve Blank’s “Customer Development Process.” In fact, a friend of mine bought me Steve’s book just after it came out. He was living out in California in Berkley and he said, “You’ve got to read this.” We were kind of doing that intuitively. We said, “We’ve got to go test our customer hypothesis and our product hypothesis.” We went to visit Yale’s CFO. Now Yale wasn’t an ideal customer. In fact, Yale is still not a customer of HigherOne, but here was a very experienced CFO. He had been at a number of institutions, and he had many connections within the university business world. We said, “Here’s this idea we have. We think that we could enable schools to provide checking accounts and debit card products tied with their ID to the students. It seems like this is something that you might want to do. You’re kind of already doing it at Yale. What do you think?” We went to him, and we went to a number of other CFOs.
His insight was, “This is great.” In fact, the interactions between us and students generally aren’t great. We cut a lot of checks which we give to students. Students pay us in ways that aren’t the most efficient. Parents give us money via checks or credit cards. We’re equipped to handle that but there’s an opportunity for a company to come in and make this all work a lot more fluidly and more efficiently. You could save us money and make the whole thing work better, particularly the process of getting money from schools to students. When your student loan comes in, whether it’s federal or it’s private money, the school is taking that in and it’s taking what’s owed to it and then it has to pay the remainder back to the student.
As he started teaching us about that and the fact that there was really no payment solution for it, we said, “Okay, that’s really where the opportunity is.” That was his counsel. Solve that problem and you’ll get a lot of customers.
Andrew: He said, “Find a way for us to easily give money to students and also find an easier way for the students to give money to us.” Before you guys came around, schools were cutting checks and handing it to students.
Sean: Yes. It was interesting as we were starting to explore that. We read these stories in student newspapers of riots breaking out where students were waiting in line for a check. They were waiting in line for two or three hours and people got angry and then fights broke out in the line. When you’ve got a problem where a customer is literally having violence happen because this problem is not solved, you’ve got a pretty strong case to build something that people will buy.
Andrew: Sean, what about this, though? The end customer isn’t your customer. It wasn’t going to be your customer. Your customer was going to be the bureaucracy that doesn’t often have an incentive to modernize. I don’t think of colleges as places where you go for the latest technology, with the exception of the internet. They’ve been slow. How did you know that they’d be willing to listen to you and that they’d be willing to buy from you?
Sean: It was really a lot of conversations with potential customers, kind of going back to us taking Steve Blank’s advice before he gave it. We went out to trade shows. We built a customer advisory board. One of our first hires was a sales person who had deep experience in the higher education vertical, selling to university business officers. We kept testing those sales assumptions.
The fact of the matter is it is hard to sell into higher education. Our first sale took almost two years from when we first came up with the idea. It took a lot of determination and discussions that led nowhere. Then, it’s a marketplace where your first buyer is a early adopter. The University of Houston’s CFO saw the vision for this, and was excited about it. Your second customer wants to see it working with your first customer. The third customer wants to see it working. It’s a very slow sales uptake, so you’ve got to build a very broad sales pipeline and you’ve got to have lots of conversations going on and you’ve got to be able to survive during this time. We were able to do that both by showing continuous progress as well as having [inaudible]. We had a lot of investors and we were able to keep going back to them and showing them progress both on the product and the customer side. We raised the money, showed them when we hit milestones so then we could get money for the next milestone.
If you think back into the time when we were doing this from 2000 to 2004 or 20005, it was dead. There was very little [imaudible] money out there. I could go through a laundry list of people who didn’t even return our calls, let alone take a look at the pitch and then showed us the door.
Andrew: Actually yes, I’d like to hear about that because I read that you talked to 350 potential funders. By the way, is my video coming in for you okay?
Sean: Your video is pretty much stuck. But that’s okay.
Andrew: Yeah, it looks like it. Let me see if I can unstick it. There we go, I unstuck it. The first check, I heard, was for $10 thousand from a family friend who invested in the business. 350 conversations, can you sum up how the rest of them went through? What was it like?
Sean: Yes. Someone told us that this person was an angel investor. We certainly did have a number of friends and family who invested in the business. The nice thing is that Connecticut has this reputation as having a lot money, but not a lot of money that goes into startups. We found that wasn’t entirely true. A gentleman who is the CEO of Standard Oil of Connecticut, who’s actually a brilliant angel investor, I think we were one of his first technology angel investments, but he’s done a lot of deals with me since then. I got introduced to him because my father’s best friend was his next door neighbor in Fairfield. He ended up investing quite a sizeable amount.
We did things like look at the Yale Business School’s advisory board. We went to one of the professors there who was very helpful to us. He helped write a cover letter which we wrote to members of that advisory board. We ended up getting an investor out of that process. Everyone we talked to, we would say, “If this isn’t for you, is there someone you think might be interested in this that you could refer us to?” That worked really well.
Our first institutional money came from a fund called Hanseatic Corporation. There’s a gentleman called Paul Biddelman who is a wonderful investor in the New York scene. Paul has been involved with a number of companies. His name is not high profile, but he’s a great investor. If you can get him, you definitely want him involved. We went to Paul three or four times. I think he said by the fourth time that we came to pitch him, he said, “You keep doing what you said you were going to do and then you come back. If you just do that into the future I’ll make a lot of money off of you, so I’ll put in.” I think it was half a million initially and then he ended up continuing to invest with the business.
Andrew: What did you say you were going to do in the early days that you were able to deliver on before you got your full funding?
Sean: An example of our early stage milestone that was really important for us was a contract. We said we’re going to accomplish one contract with the university and we’re going to raise the money to fulfill that. We got the contract with University of Houston. Even before that, keep in mind we raised something like $60 thousand so we weren’t going to have these huge milestones that took a lot of money to accomplish. We said we were going to hire an experienced salesperson with higher education experience and a rolodex of contacts and we’re going to convince him to join this company which has only $60 thousand in the bank, and we did that. A gentleman, Walter Hinckfoot was our first salesperson, he knew folks at University of Houston, and subsequently Walter was involved in many sales that we made as a company.
Andrew: So there are milestones like that that show that you’re making progress, that show that you’re taking this all seriously. University of Houston bought before there was a product for them to buy. They bought a promise. How do you sell someone on a non-existent product? How did you sell University of Houston on that?
Sean: My experience, and this is also with some of the companies I have angel investments in, that really early adopters, early evangelists often have envisioned your product before you knock on the door. You knock on the door and they say, “Yes, I’ve always wanted someone to knock on my door to try to sell me that. Sure, I’ll buy it.” You say, “Well, it’s not finished yet. We’re currently in a pre-alpha.” They say, “I don’t really care. I know where you’re going with this. I’d like to buy it and I’d love to help influence as you keep building it.” When you find someone like that, they’re worth their weight in gold. [imaudible].
Andrew: You’re at a temporary place today where you’re using DSL that’s been a little bit shaky. That’s why our connection’s been a little laggy today.
Sean: It’s with having a newborn I’m working at home more than I would otherwise.
Andrew: You’re not too far from where I am right now. You’re in the DC area right?
Sean: Yes. I’m actually hanging out with the folks at Novac-Biddel Venture Partners in Bethesda which has been a very successful venture fund. I’m learning a lot from them on the investment side. DC’s an interesting place. There are a lot of young entrepreneurs doing cool things here.
Andrew: Really? I didn’t know that.
Sean: It’s not a well-known fact. I think DC is going to emerge as a startup hub over the next five or 10 years.
Andrew: What I’m finding is that there are a lot more startup hubs across the country because it’s becoming easier. It doesn’t really matter so much where you are because people are born everywhere with this need to be entrepreneurial. What’s happening now is investors are saying let’s lock them down before they go to Silicon Valley. Let’s give them an infrastructure here so that we can participate and they can help grow the community before they pick up and leave and try to find it somewhere else.
Sean: Yes. DC has had a lot of successes. Obviously, Blackboard, which Novak-Biddel was the first funder, and it’s been very successful. There are things that people don’t even realize. There are more GIS engineers in the DC area than anywhere in the world. If you think about the importance of [inaudible] and how that’s an emerging trend, the [inaudible] of data, big data generally, and location-based applications. DC’s actually pretty well positioned to lead in that area. The challenge is obviously to get those engineers out of government type jobs and into startups. That’s something I look forward to trying to do while I’m here.
Andrew: Going back to University of Houston. You’re in the northeast. How do you end up at Houston, talking to the CFO of the university there?
Sean: Walter, who we hired as our first salesperson, had a really close personal relationship with the CFO. Walter actually lived in Houston. He had known him for awhile and had sold him some products previously. When he picked up the phone to call the first 10 or 15 people on our behalf to say, “Hey, I’m working with this company, here’s what we’re doing, what do you think?” that person was on the list. Like I said it was kind of a “Oh, you’re doing that? I’ve always wanted it. Yes, I’ll do it. Let’s work out the details. I’m willing to be a guinea pig for it.”
Andrew: How did you convince Walter to join up considering his experience and connections and your lack of experience?
Sean: I think when we had him up to New Haven, we took him for Indian food. We weren’t going to hide that we were between the age of 20 and 22, but we demonstrated that we’d raised a little money. We knew what we were talking about, and we presented a comprehensive product vision. We said, “Look, here’s what we’re doing. We think it’s exciting. We’re going to get this together and if you think you can sell this and this is going to make it, you’re going to make a bunch of money. And it will be fun. This will be a chance to build something.” He had been at a company called AT&T Campuswide which ultimately was a Campstart system which Blackboard bought. He kind of was looking for something non-corporate. I guess he did his due diligence, in a sense, on the product. He called a number of people and he thought, “I can sell this, so it’s really not that risky.” He agreed to come on board.
Andrew: You get the University of Houston. It’s time for you to get funding based on that. You get your funding and start to build it. How do you build something so big? How do you take that on?
Sean: I’m a big Warren Buffet fan and his autobiography called Snowball. It’s a little bit like that. We started HigherOne in March of 2000 technically, when we incorporated the business. Now you’re looking at 11 years and kind of a power of compounding. From the first revenue we had, we said we want to at least double our revenue every year and if we can do that for 10 years, we’ll be a big business.
When I talk to entrepreneurs out in Silicon Valley there’s such a focus on “I’ve got to get huge right away.” It’s like, “I want to be YouTube.” It’s an incredible win if you’re able to get a business from zero to a couple hundred million in two or three years. But to go from zero to a billion in over nine or 10 years is also a tremendous return for investors in the sort of venture return that drives LPs to put money into venture funds. Build a real business, but focus on doubling revenue every year. If you can do that you’ll build a tremendously big business. Your investors will be really happy. You’ll do really well, and if along the way it so happens that you go from 0 to $800 million in two years, that’s even better.
Andrew: What I’m wondering is about the product. You need a product that works with ID cards that students are carrying around that can’t get cheated because students have a lot of time to figure out ways around the system, that will reassure the university, that works with their infrastructure. How do you build something so big?
Sean: In our case it was using a lot of infrastructure that [inaudible] in place. We built a lot of our own technology, but that technology knit together a lot of other systems as well. It’s making strategic decisions about what do you build versus what do you buy? It’s learning. For us, both in terms of building the business as well as building the product it’s that constant [inaudible]. We would do things and we would figure out, “We’re leaking money here. We’ve got to fix that.” Then you’d go fix it quickly.
I don’t know if you remember the beginning of PayPal. Within the first couple weeks of PayPal launching, I met a guy named Jack Selby who was involved early on when it was Confinity at the consumer electronics show back in 2000. The first week that PayPal launched I was trying it out and very quickly realized that if I wanted to, if I had a check from you I could drain your checking account. Within a week, there it is on CNN, people were basically doing that. Obviously the company survived that. They fixed it.
We didn’t have something like that, but as we went through the product we were able to say, “This isn’t working, we need to fix it.” It was just constantly paying attention.
Andrew: What’s an example like that that happened to you at HigherOne?
Sean: A great example is with an early client we had. This wasn’t something like a financial issue, but an early client we had the implementation got a little rushed and we didn’t quite have enough resources to make sure that it was right. Somehow the process of integration between our system and their campus ID system wasn’t perfect when it came to, I think it had to do with permission with gym usage. Somehow something was getting screwed up in there and you end up with about 500 students that when they showed up at the gym and swiped the card, there was a conflict between the numbers on the mag stripes, and they would be told they couldn’t use the gym. They would say, “But I paid to use the gym.” It was that sort of controversy. I just remember our technology team, our customer implementation team and Miles and I sitting in the office at 10:00 or 11:00 at night saying, “Holy s—t, we’ve got to fix this.” Really, that was Miles and Kasey, they deserve the credit. They worked endlessly with the client to say, “Okay, how can we fix this?” to make sure that we took responsibility appropriately and got it right. Then we learned for the next client implementation, why did it go wrong, how can we avoid it and how do we make sure it works perfectly in the future?
Andrew: Version 1 did what? What was the functionality that you offered the first circle at the University of Houston?
Sean: The evolution of the University of Houston was an ID card. It had a photo, it could get you in and out of buildings and then you had a checking account attached to it. You could write checks off of it. No online bill pay yet. It worked as a debit/MasterCard and as an ATM card. We had ATMs on campus where you could get cash out for free. We also had a rewards program called One Rewards. There were places around Houston right around campus where you could use your card and get some points. Eventually you could cash those points in for something. That was it right in the beginning.
Andrew: Let me stop you there before we get to the second. You partnered with a bank then, to offer the debit card and the accounts?
Sean: Yes. The company partnered with a bank. But even as of today, HigherOne builds and provides all of the infrastructure and contractually the bank provides the FDIC insurance.
Andrew: I see. I didn’t realize that. You partnered with the bank and you offered their services to the school. What did you build, and what did you buy?
Sean: I’m not sure I can quite get into that. That’s a lot of stuff.
Andrew: I mean just the top level. What kind of things could you tell us?
Sean: Generally, we were building all of the front end and we were building all of the middle. So we were building all of the stuff that tied the systems together and we were building the user experience on top of that.
Andrew: What were the systems that you were tying together?
Sean: Payment systems, back-end banking systems, and tying into electronic clearing houses etc.
Andrew: This is interesting, because I think a lot of other kids who would have had this idea, and I say kid because you were still in school at the time, would have said, “How do we open up a bank? How do we do all this other stuff that isn’t necessary? How do we now issue our own points and our own miles instead of recognizing that there is an infrastructure in place to let anyone offer points and miles?” I can give people miles for every minute that they watch one of my interviews. That was in the first package. That’s what you guys cobbled together and I have an understanding of how you cobbled it together.
Sean: I like to think I’m still a kid. I’m only 31 now.
Andrew: You’ve got a kid now. You can’t be a kid and have a kid.
Sean: Yeah, I guess I passed that milestone last week.
Andrew: Yes. 10 days ago, you passed that milestone. What was that second version that you were about to tell us about?
Sean: Essentially from there we developed a payment processing infrastructure, the outbound payments. We did that with our second client, the University of Wisconsin at Stout. If you can find a customer who is essentially buying your product because they want to be more efficient and they’ve won a Malcolm Baldrige National Quality award from the White House, and they were the only potential customer in our market in higher ed. who had won that award. It’s an award from the White House which is given out for quality improvement. They essentially said, “We want this because we think it will save us a lot of money and make our students’ lives easier.” We build that kind of with them. We had our product vision and kind of added to that. After we launched from there, they also became evangelists. One of the folks there, a guy named Joe Krier would go to trade shows and talk about it whether we asked him to or not. He was going to go tell people, “We use this. It’s the way things are going to go. It’s better for schools and better for your students.”
You mentioned earlier I think that higher ed. gets a bad rap. It’s kind of bureaucratic, and slow, but it’s like any industry. There are people within higher ed. who don’t fit that stereotype at all. They’re super into technology, they’re all about efficiency, they get things done, and they’re like the unbureaucrats. We were lucky to find those people.
Andrew: The reason I say that is partially because of my experience and partially it’s because of some of the entrepreneurs who I’ve interviewed here who have gone after higher education. You’re right. They sometimes see it as this big bureaucracy, as this one big customer almost. But within there, there are some people who are a little more advanced. There are some people who are a little more open and are more willing to try and to evangelize.
When you’re building with other people and you’re dependent on them, it’s very easy to take on their direct needs and build just for them because you want to please them, but end building something that’s not right for others. Did you have any of those challenges, and how did you deal with them?
Sean: This is where Miles and Kasey deserve a lot of credit for interfacing with the university customers. We realized we were getting lots of suggestions from our university customers for the direction to take the product. Sometimes we would even get conflicting requests. One school would say, “We want this.” and the other school would say, “We absolutely do not want this.” and it was the same thing. What we did was take the most passionate customers and put them on a customer product advisory board. We manage commitments to that group. That group discussed things, they came up with recommendations and then we said we will implement a certain number of these recommendations.
It enabled us to take our product vision and things that we saw were going to be important in the future and put them into the product and show our customers we were listening to their needs. The customers, by being able to talk to one another, it was tempered. Someone might be really passionate about a certain aspect of a product and when they talked to their peers they realized it’s really specific to their institution. Although it might be useful for them, three other things would benefit the group as a whole and they would get on board and say, “Okay, let’s do those things that benefit all of us first.”
Andrew: Before the interview started, I asked you for milestone and setbacks. I thought I saw a light go up over your head. I thought I saw you even write a note down about it. Did you have any in mind? How about one big setback that we could talk about?
Sean: I started a second company after HigherOne which was one big setback. I learned a lot from that. That could probably be an hour or two interview in and of itself. I think to some degree, as much as we don’t want to have something that doesn’t work out in our lives, sometimes having something that doesn’t work out teaches us more than the things that do work out. I’m trying to think with HigherOne. We had very few true setbacks with the business. I think one of the things that came up which was difficult is we had Portland State University as one of our customers. If you ever go to Portland State University you’ll see all the stuff. There was a point of view that students really didn’t like the company and the company’s were evil. I guess it was not as much a setback as it was frustrating. You had a small number of players. Portland State is something like 30 thousand students. There were probably 20 students who were basically anti-corporate activists. “We don’t want any corporations. Corporations are evil. If you run a business you’re evil or you’re the devil.” It was unreasonable. So Miles, Mark and myself and others in the company were willing to engage and say, “Okay are there certain things you don’t like about the product and service?” They would key in on certain things and say, “Okay, you charge these fees.” The little known fact is HigherOne was the low cost provider of checking services. If you took HigherOne’s fees versus Bank of America or Wells Fargo, generally the company is 20% to 30% cheaper across the board. But if you’re a student and you want to make it look bad, you just make unfair comparisons.
Andrew: I think one of the reasons they were saying that was they don’t expect anything that’s associated with their school to charge them a fee. They were expecting free. They were expecting convenience from their school and they ended up with a checking account that they had to pay interest on. You guys keep addressing it whenever people bring these issues up and you keep saying, “Our rates are comparable to others.” and you’ve gone out of your way from I’ve seen on the website to say, “If you want to use this as a free option, here’s how to do it.” But you do try as an organization to move people towards the fee-based services so that you can bring in revenue to move students specifically towards that.
Sean: That’s actually not true. The second part of what you said is not true. I can’t speak for the organization today because I’m just a shareholder now, but while I was there and they were promoting the business model, it’s not about moving students to anything on the fee schedule. As a business, what you want is for students to have a balance in their checking account and to use their debit card. That makes the company money and it doesn’t cost the students anything. A lot of the marketing and educational endeavors that HigherOne takes on and works with schools one is actually designed to drive students to use the accounts in a way that costs students nothing. The other thing and kind of the reason I was bringing Portland State up is that what was frustrating was that, here you had a company which was started by students, which is going to be more willing to listen, engage, work with, modify the product and everything else than any of the large banks than those students were kind of saying they’d rather have, like Bank of America. There was also just a misunderstanding of when HigherOne worked with a school, essentially it added the ability to get your money faster and actually it was just an additional choice. Additional choice? Good thing. Product that you could use for free? Good thing, and if you don’t want to, you can get a check and that check was going to come to you faster than it used to in the past. The company is very customer centric whether that’s universities or college students. We had a situation where there were a small number of people who said, “We hate you but we don’t want to talk to you.” It sounded like some of the political discourse that goes on. It’s like “I’m just going to say that the trip to India cost $200 million a day. Never mind that it’s factually untrue or that I’m not even going to let you talk to me about it.” It was an interesting experience. The fact that that is the only thing I can think of as kind of a setback shows that overall we had it pretty good and things rolled along pretty well.
Andrew: That’s what I saw. It did seem like it was a nice, smooth, slow ride though. It started in 2000 and most people would have given up a few years into it. I don’t think you got any traction until 2004. By then you raised $16 million, and you had a client, but 2000 is when you launched.
Sean: Yes. I just remember as we were building the business thinking, “I know there’s a business here. I know it’s a good business, and we’re getting there.” You could see the progress. There wasn’t a point where we were sitting there saying, “We should give up on this and do something else because this isn’t getting us anywhere.” When you’re looking at it, first year revenue was about $50 thousand. Second year was about $400 thousand. The next year was $4 million, and the next year $9 million. You see 4 and you’re seeing next year is going to be 9 and you’re saying, “If this just keeps going like this it’s going to be a great business.”
Andrew: How did you keep it going like that? Was it just a matter of signing up new universities year after year? Was there product that you needed to add also that helped juice the revenue?
Sean: It’s really selling more universities. It depends on how you slice up the university market. You could probably say there are about 2200 schools. It just takes awhile to sell. The sale cycle could go from 4 months to 36 months probably. What you’re doing is adding to your product stat. You get to some mainstream customers who say, “If the product had this then I’d be interested in buying it.” As a startup you can’t build everything right away. You’re selling through the pipeline of people who will buy what you have and then you’re slowly building out to the people who say, “When you get to this, I’m going to buy it.”
There’s momentum too. A community college in Alabama wants to see a reference client that’s a community college in Alabama and until you get that, that kind of mainstream buyer in Alabama won’t buy. You’ve got to find the early adopter in Alabama who is a community college.
I find the concept of markets from crossing the chasm really useful. A market is a self-referencing set. We think of markets as the higher education market, but it’s not really a market. The market is community colleges in Alabama, four-year research universities in Washington, so on and so forth.
Andrew: You left in 2008. I think the company raised a big round right about then. That round helped some of your early investors cash out. Did you also cash out when you guys raised that round and when you were done?
Sean: I took a small amount of liquidity at that point. Not much, because I was a big believer in the business and the other guys. Even today I remain a large shareholder.
Andrew: You hinted at this. The next company was Pick’Em. Raised money and had to close down I think within two years.
Sean: There were lots of lessons from Pick’Em.
Andrew: I would love to do a whole interview on that. Why don’t we spend a little bit of time on this and then if you’re willing to, I’ll invite you back to do a whole session on Pick’Em. When you guys closed the company, TechCrunch flung you into the dead pool and it wrote a long, detailed article and included pictures of the women.
Sean: I’m good friends with Mike Butcher, I like Mike a lot. He sent me an email 15 minutes to an hour before he published that and I was on a cross-Atlantic flight at the time. Then he proceeded to publish and a lot of what he published wasn’t right.
Andrew: To your credit, you stood up and you addressed it right away. You didn’t just say, “That’s TechCrunch, screw them.” You came up with a response that explained, actually why don’t you take it? What was going on?
Sean: There are a lot of things we learned with Pick’Em. One of the biggest things is we did not follow a customer development and customer validation methodology early on. Because we were providing a product that needed a gambling license and was a regulated industry, we kind of built product and built the infrastructure that was needed before we figured out whether the product was going to be something that people actually wanted.
We had a strategic investor in the deal that at a certain point had a reorganization. The people who had backed the investment left. We actually had one of our board members, a guy named Dan Porter. Dan is the CEO of OMG Pop and he’s a great guy. Dan was great when he was on the board and then all of a sudden it was like, “Well, Dan’s out at [inaudible] and he’s going to go do something else. Who’s going to come on to the board?” We never got a replacement board member. The gentleman who was on our board from Virgin UK kind of got shown the door. It had nothing to do with Pick’Em at all, it just had to do with broad Virgin politics. There were a number of things.
One of the things I definitely learned was, don’t take strategic money unless you sign a strategic deal before you take the money. We got pitched on, “We’ll get you deals with Virgin Media. We’ll get you deals with Virgin mobile and we’ll help with all of this distribution.” Pick’Em is a consumer platform for pool betting basically. Really, it needed broad consumer distribution. We thought, “Okay, this is great, Virgin in the UK. Virgin media is the Number 2 ISP. This will be great, we’ll get great distribution.” So we took the money. Then we go to talk to Virgin Media and we’re essentially told, “Well, 18 to 24 months from now we could probably get a deal done.” We’re looking as a startup, “18 to 24 months from now, unless we get customer attraction, we’re really not going to be around.” That was very difficult. There was a point where first round capital was involved both Josh and Chris [inaudible] Those guys were great. The way they treated us as it was falling apart was actually a tribute to them, so I like to send deals their way and try to collaborate with those guys on angel investments.
There was a point where we wanted to pivot, where we said, “Here’s what we have. What we’re doing is not working.” It turns out that people like playing games with friends for fun and they’re willing to buy ingame stuff and that’s how you can monetize it, if you look at Zinga. But casual, small betting doesn’t really translate online. I kind of figured that out in January or February of 2009. I’m trying to think of a timeline. It’s a little hazy with so little sleep.
Andrew: I think you launched in 2008.
Sean: It was just after that, in 2008 that we kind of figured out, “One, we’ve over-developed the product, it’s a little too complicated. This behavior doesn’t really translate online. We were getting people converting into playing for fun. [inaudible] a couple things. [inaudible] developers. There was a lot of interest from developers in building games that used gambling as a monetization method. Then, gambling companies were very interested in novel platforms. We should have pivoted to become a white label provider to the gambling companies like BWin, Paddy Power, [inaudible] etc. What was really interesting and there might be an opportunity for someone to do is to build cloud infrastructure for gambling. If you’re in a marketplace where there’s well regulated gaming industries, we could have had ran a number generator, payment payout generator, and this kind of infrastructure that you could develop off of and then we would approve it through the regulatory process, put it into a sandbox and developers would have paid us for that. For revenue, it was a really interesting idea. I wrote it up, Josh and Chris and I were really excited about it and we took it to Johannes Larcher who was a guy we brought in as CEO and to Virgin and the response at the board meeting was “No way in hell are we doing that. We’ve got to just keep doing what we’re doing and good luck.” [inaudible]
I think one of the things I learned there is there is a certain time as a founder of a company you’ve got to just dig in your heels and just say,” Look, we’re going to change. We’re going to change this direction. Johannes, you’re currently CEO, but I’m the largest non-investor shareholder and if you don’t want to change, you can go on your way. Otherwise, if the board doesn’t want to make this directional change . . .” Johannes and Virgin had enough board votes where they could essentially as a block have a say. That’s what happened, we essentially didn’t change. I probably should have said, “This isn’t going to make it.” We did decide to revamp what we had to a much simpler product and keep going the same direction. I tried to work hard at that and make it work but it didn’t. At that point we called time and moved on.
Andrew: Let’s spend a little bit of time on the current company. What’s the idea that got you to launch EmployInsight?
Sean: I’ve been fascinated, even when I started HigherOne with the idea of putting the right people together. This is something, if you’re a venture capitalist, everybody says they invest in teams, not ideas. How do you know it’s the right team? How do pull the right people together? As for an entrepreneur, how do you know you’re going to work well with your co-founders? As you’re hiring key members of the company, how do you know they’re going to fit? When I started looking at this concept generally, I saw Fortune 500 CEOs saying, “The most important thing you can do as a company is to hire for fit.” As I started to look broadly at the HR hiring space, there are tons of companies out there that help with sourcing, like CareerBuilder, Sourcing, Monster, etc.
There was no product out there that will help companies hire for fit. There is a huge number of what I would call candid assessment tools. Most of these are provided by consultants. I looked around and said, “Why do we not succeed in hiring for fit?” I went through this Masters in Applied Positive Psychology at the time and decided to study this for my Masters thesis. As I went through this the research indicates there’s certain things that matter, that [inaudible] with performance in a job as well as happiness or life satisfaction for the employee. One example is alignment with strengths. If your job uses your strengths often, it’s going to lead to happiness as well as performance. It seemed like the problem is that we don’t describe jobs along those dimensions.
I’ve developed what we call our 4-D Hiring Methodology. We’ve got four dimensions that matter for fit. We’re developing a product that makes it easy for a company to describe their job along those four dimensions. The first thing is job descriptions suck. If you read most job descriptions they’re like, “You must be able to do these things and you must have gone to this school or have this degree.” That’s kind of it and then it gives you a little bit about the company. Do you really know that you’re going to enjoy that job and do it well because you enjoy it or do you just know that you could do the job? So we’ve developed this hiring methodology which we plan on publishing. We’re going to do free webinars. Our goal is to get that methodology out there generally for anyone to use for free.
Then, we’re building our first tool which is called 4-D Create. It makes it really easy. You answer a number of questions as an employer and it profiles the job across these dimensions. From there we’re going to build tools for sourcing, accessing and ultimately for job seekers too. In the future you could take a look and say those are my psychological strengths, resources and how I’d like to be compensated. We could then help you find jobs that are specific matches with that. That’s what we’re focused in on.
Andrew: I could see that. If a job understood that I was curious, or that I paid attention to detail and gave me work where I could pay attention to detail instead of trying to be creative. Or, if I was creative let me have a job where I could be creative but not worry about the details. I could understand getting into it. Are employers self-aware enough to know what each position is going to entail, let alone what skills are going to be necessary and what personality is going to be needed?
Sean: Yes. Our program is making it easy for someone who’s hiring to develop the description of the job along that psychological dimension and fit without having to know the science or answer ridiculous questions. Just think about the position you’re hiring for, answer the question truthfully and then we’ll generate a description along that dimension that will make sense. It’s got to make sense.
Taking my own advice, we’ve done a lot of customer conversations. Anyone who’s listening to the interview if you’re interested in this generally, definitely email me or send me a Twitter DM. We’ve been hearing from a lot of people, “If we hire one bad person it costs us a lot of money.” These dimensions as you describe will make a lot [inaudible audio] We’ve shown them examples of the job profile that we can help them generate. They say, “I get how this could work. I see how this is different and I see how it would be [inaudible].” We’ve got some pretty good feedback so far.
Andrew: I’d love to ask you more about it but I can see that the connection is not holding up that well. We’ll end it here. Hopefully I’ll have you back on and we’ll do a second interview. Since we’re kind of in the same area, maybe we’ll get together for a drink.
Sean: Sounds good. Thanks a lot Andrew.
Andrew: Sean Glass. I need a way to end these interviews. How about this? How about advice? That’s a good way to end it. I need to get the exit to be as powerful as the entrance without putting too much pressure on you. What advice do you give other entrepreneurs?
Sean: I will give you something my wife taught me. Do something you care about. The reason I’m building EmployInsight, and I’m investing a chunk of my own money, and I’ve got a team of 30 people, all of whom are really top-notch working on it, is because it’s a problem I care about. I know that if we solve this problem it can make a big difference. When I think about some of my college classmates from Yale who I’ve run into, they basically sound like, “Blah, blah, blah, I hate my job.” That’s a big problem. There are many people in jobs they don’t like and so if I can help solve that problem from an individual standpoint as well as from a company standpoint it can make a big difference. Whatever you’re thinking of starting, make sure it’s something you actually care about, and something that when you succeed, it actually creates value in the world. I’m teaching a class at Yale right now, a Technology Entrepreneurship class, and we talked about this the first class. You want to start something that changes the world. It will make you money when you do that, but you don’t want to be Endzyte. You’re not selling snake oil. Do something that matters. Do something that you’re passionate about and that you strongly believe is needed and will make a difference.
Andrew: That’s a good place to end it. I’m going to start doing that at the end of the interview. Sean thanks for doing the interview. Guys, thank you all for watching. The new company is EmployInsight.